Not to be a wet blanket, but the Illinois winner of the reported $1.28 Billion Mega Millions lottery is likely to walk away a millionaire … rather than a billionaire. Winning the second-largest jackpot in Mega Millions history is no small economic triumph. That said, let’s take a look at the likely results for our lucky lottery champ.
A quick look at the math. The winner has the option to take the $1.28 billion over time, or an immediate present-value payout of $747.2 million … net of initial federal taxes. Note: Winners nearly always take the on-the-spot lump sum.
What happens next are steps that continue to further transform the former billionaire into an ever-diminishing millionaire. Here’s a rundown of that scenario.
Enter the IRS: The winner’s $747.2 million payout will be reduced by IRS withholding tax of 24 percent leaving the winner with about $567,872.
If the winner “qualifies” for the top 37% federal income tax rate, the taxman picks up another 14% (difference between 24% already withheld and 37%), i.e. $97,136 million. That means a tax bite of $276,464 million in federal income taxes for the 2022 tax year.
So far, that leaves our winner with $470,736 million after all federal tax payments.
Why “So far”? The Virginia Department of Taxation will seek its just-due in state taxes. The Commonwealth’s tax rates range from 2% to 5.75% ... the highest percentage kicks in at an annual income of more than $17,000.
OK … armed with the foregoing knowledge, you may choose to “invest” your $2 in a hopefully winning ticket. Just be forewarned that, upon becoming a winner, your conscious choice may be to forfeit billionaire status for that of a multimillionaire.